Madoff feeder fund accused of fraud and deception

NEW YORK - Hedge fund Fairfield Greenwich is facing charges of lying to investors over the Madoff fraud. The fund, founded by socialite Walter Noel, was reported to have had a $7 billion exposure to Bernard Madoff's $65 billion Ponzi scheme. Now it is facing a civil fraud complaint from Massachusetts secretary of state William Galvin alleging that it misled investors over due diligence performed on Madoff's collapsed scheme. Galvin - the top Massachusetts state regulator - says his office had tried to discern how Fairfield could not have discovered the fraud during its 18-year relationship with Madoff. Galvin said: "The answer is that they were blinded by fees, did not engage in meaningful due diligence and turned a blind eye to any fact that would have burst their lucrative bubble."

The fund released a statement in response to the regulator's accusations, calling them in turns sensational, false and misleading. Fairfield says the complaint is "based on nothing more than 20:20 hindsight" but fails to arrive at an accurate understanding of the facts and contains several inaccuracies in its version of events. The fund alludes to the fact that if the Securities and Exchange Commission, other US regulators and thousands of investors could be successfully hoodwinked by Madoff, then there is no reason to suggest that Fairfield could have done better to detect what it calls "his sophisticated fraud".

Fairfield allegedly told clients that it conducted daily monitoring of its holdings and risk profiles. The fund received information from Madoff three to five days after he allegedly conducted trades for the funds. Fairfield is the first feeder fund to face regulatory action linked to the Madoff fraud. It was rapidly revealed to be the most heavily exposed fund to the swindle after Madoff handed himself into regulators in December, claiming his investment fund was "one big lie". He subsequently pleaded guilty to fraud charges in March. Fairfield says it will vigorously contest the complaint.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here